Maximizing Local Content in Renewable Energy Sector

1. Independent Power Purchase; BID Windows One & Two The Impact of Importing RE Technology and Opportunities for Localization Energy Consultative Meeting: Portfolio Committee on Energy (PCE) Thursday 07 June 2012

2. Why Local Content? • The purpose of the local content requirements is to foster a local renewable energy manufacturing sector and create `green jobs‘ • To promote skills development, tertiary education opportunities and small business opportunities. • Local Content Requirement; Windows One and Two • The local content requirements in Windows One and Two specified commitment to a minimum local content level of 35% for the initial roll-out of renewable projects. • However, with local content defined as the total costs attributed to projects, this figure is not restricted to key plant components, but a range of products and services needed when developing large-scale plants.

3. Value of Local Content Vs. Imported Content Windows One and Two BID The total investment of R75 Billion was received during BID windows One and Two. Only 31% of this investment will go to local content. The rest will be imported. The Imported content extends to the entire project value chain.

4. Job Creation Impact Windows One and Two 735 Jobs to be created during Operations 4% The job creation impact is good during construction phase but extremely low during operational phase. Most jobs to be created under Windows One and Two will be temporary jobs and might not meet the log term goals of providing sustainable jobs What happens to the skills developed during construction phase? Mechanism for the utilization of these skills in further Bidding Rounds required

5. Percentage of Megawatts by Technology • Solar and Wind remains dominant technologies and offers opportunity for Local Content. These components range from primary to secondary components. They include. • Trackers, • Turbine Towers • Pumps, • Storage, • Power Block, • Mirrors and receivers • Control System, etc. • However Waste to Energy Technologies offers most opportunity for job creation and local economic development in the semi-skilled and unskilled segment of the economy.

6. Waste to Energy offers the most Significant Opportunity exists for Job creation and local content because of the level of labour intensity in the extensive waste to energy value chain.

7. Renewable Energy Local Content Baseline in SA • To date the true manufacturing potential in South Africa remains minimal. Currently, only 2 active Solar PV players who export the majority of their product to Europe. • Solaire Direct has a 36 MW Solar Module Assembly Facility based in Cape Town South Africa, which started in January 2009. Whilst Tenesol, who have recently strategically merged with SunPower, has a Local Assembly Capacity of 800,000 solar panels a year. Most of the components are still being imported • To Achieve Increased Local Content Through Manufacturing • Brand South Africa Support Mechanism in the context of local content manufacturing • Well coordinated National Strategies for Industrial Development in RE space • Positive Policy Environment • Financial Reassurance • Market Longevity Guarantee • Intelligent Subsidies with limited lifespan • Comprehensive Assessment of the Readiness of the RE Technology Value Chain

8. Wind Technology Component Value Chain

9. PV Technology Component Value Chain

10. Local Content Requirement used in other counties to facilitate the creation of a local RE manufacturing industry

11. Socio-Economic Development • Apart from local production in terms of manufacturing and job creation, it is also noteworthy that RE project developers are required to implement socio-economic development (SED) and enterprise development (ED) elements as stipulated by the bidding process, targeted at local communities in the vicinity of the renewable energy project • The process lacks clarity on how these socio-economic development measures should be implemented. • There must be an effective mechanism to assist project developers in managing these funds and ensuring that the development takes place in a sustainable manner. • SANEDI can develop training curriculum to assist the Energy SETA’s in the skills transfer process • Skills Development and Transfer • Related skills shortages have been highlighted in the Sector Skills Plans (2011-2016) recently published by merSETA (manufacturing and engineering related services) and ewSETA (energy and water services). The requirement for addressing the skills required for wind turbine service technicians is currently being addressed by merSETA as part of its mandate.

12. Estimate of Jobs to be Created from Renewable Energy Generation in the Short, Medium and Long Term The contribution made by a progressively expanding green energy generation segment increases from 14% of the total in the short term, or just over 13 500 Jobs, to more than 28% in the long term, by which time some 130 000 Employment Opportunities are, on average, expected to be associated with this type of activity Source; Green Jobs – Study by DBSA, IDC and Trade and Industrial Policy Strategies

13. Job Creation Impact Windows One and Two BID Process 735 Jobs created during Operations 4% The job creation impact is good during construction phase but extremely low during operational phase Most jobs to be created under Windows One and Two will be temporary jobs and might not meet the long term goals of providing sustainable jobs

14. Observations • The First and Second Bid Window focused primarily on price minimization approach rather than job creation, local content and long term sustainability issues. Its important to note that incremental costs will be incurred over time and this cost could increase if stringent requirements are not built in further rounds • Critical Mass to drive local manufacturing is not possible at this point because of the diversity of technologies. • Lack of coordinated government effort to promote manufacturing activities in the RE space • Focus on short term benefits. • No mechanism for coordinated implementation of socio-economic and enterprise development under the IPP Bidding Rounds.

15. Recommendation • Training Curriculum to be developed by SANEDI in conjunction with the Energy SETA to ensure that skills that could be developed in SA are not imported by the Project Developers • Subsequent Bidding Rounds/Windows should focus less on price and more on jobs and local manufacturing of RE components. • Local content requirement in subsequent rounds should be increased to between 60 and 90% local content. • Subsequent IPP Bidding Rounds should focus more on RE Technologies with significant Labour Intensive Value Chain. i.e. Rooftop PV and Small Wind could benefit from the skills and local content of 1st and 2nd Windows. Other labour intensive technologies such as Landfill, Biomass and Biogas should be promoted. • DTI and other role players should develop incentive schemes to particularly promote and facilitate financial investment in Manufacturing. • Brand South Africa should be positioned as foremost promoter and supplier of RE component for the rest of Africa